Paul Ryan’s Strong Antidote to Obama Health Care: Ramesh Ponnuru

Republicans say they want to “repeal and replace” the health-care law President Barack Obama signed last year, but they are a lot more specific about the first half than the second. Representative Paul Ryan wants to bring some balance to the slogan.

In a Sept. 27 speech to the Hoover Institution at Stanford University, the Republican chairman of the House Budget Committee supplied an Obamacare alternative of his own. Ryan has the right diagnosis of what’s wrong with federal health-care policy, and the right prescription, too. He just needs to adjust the dosage.

Thanks in large part to Ryan’s efforts, congressional Republicans have already embraced two of the ideas in his speech. They want the federal government to give states a fixed amount of money to run Medicaid, instead of paying for half of whatever the states decide to cover for the poor. And they want to replace Medicare with “premium support” for future senior citizens, who would purchase private insurance using capped federal subsidies.

But Republicans have had less to say about the uninsured, or the majority of Americans who are eligible for neither Medicaid nor Medicare. They have advocated tort reform and the creation of an interstate market for the purchase of individual insurance, both of which might make coverage a little bit more affordable. But as Ryan acknowledges, that’s not enough.

Taxes Are Crucial

He believes that we should change the way the tax code treats health insurance. Employer-provided coverage is not taxed on par with wages, and thus the federal government encourages companies to offer coverage rather than provide higher wages and let employees buy coverage. The more expensive the coverage, the more the tax break is worth. The fundamental flaw of Obamacare, as Ryan sees it, is that it leaves the inflationary incentives of current policy in place.

Under Ryan’s proposal, the tax break would become a credit available equally to those who get coverage from their employers and those who buy it themselves. Anyone who wanted to buy coverage that costs more than the credit would have to pay the difference themselves. The expectation is that people would buy less expensive coverage and more often pay for routine expenses out-of-pocket. The new cost pressures thus created would, together with competition, drive prices down.

Individuals would have more control because they would be more likely to own their insurance policies rather than rely on their employers. Over time, the problem of people who can’t get insurance because of pre-existing conditions would diminish, because people would have to change insurance less often. “This is the 21st century,” Ryan tells me. “People do not have the same jobs for their entire careers. The tax benefit should be attached to the worker, not to the job.”

A ‘Risk-Taker’

Senator John McCain, an Arizona Republican, made a similar proposal during the 2008 campaign, and the Obama campaign attacked it relentlessly as a new tax on employer-provided coverage. (Within two years, Obama had enacted his own new tax on employer-provided coverage as part of his health-care overhaul.) The McCain experience does not faze Ryan. “He did a very, very poor job of defending the idea,” he says. “This is not taking away a tax benefit, it is improving a tax benefit for people.” People making low incomes, he points out, would get a larger tax benefit under his proposal than they do now.

Asked to explain his colleagues’ reluctance to embrace this reform, Ryan says, “I think people are just politically risk averse. As you know, I am just more of a policy risk-taker.”

It may be that voters, too, are more risk averse than Ryan.

Voter Fears

They have repeatedly demonstrated a preference for the health-insurance arrangements they have today, faults included, over politicians’ visions of some better system. That was one of the major political obstacles to Obama’s health legislation -- and the reason he kept insisting that it would allow everyone who liked their existing coverage to keep it.

It was also one of the pitfalls of the McCain plan. Liberal health-policy experts pointed out, correctly, that if young and healthy people could buy cheap individual policies with no tax penalty, other employees would end up either paying more for employer coverage or losing that coverage altogether. If Ryan’s idea ever became subject to intense national debate, which it would before becoming law, the fear that it would disrupt people’s existing arrangements would come to the forefront.

This is not an insoluble problem, and indeed Ryan’s speech hints at the answer. “We need to transition,” he said, to a more “market-oriented” system. The transition should be handled gradually. We could replace the current open-ended tax break with a tax credit, as Ryan proposes. But for now, we could let only those people who don’t have access to employer coverage use their credit to buy insurance on their own.

A Credible Alternative

These reforms would restrain health-care inflation and put a sizable dent in the problem of the uninsured -- without raising fears of lost coverage. And they would enable the individual market to develop before inviting most of the population to join it.

Ryan’s colleagues have shied away from his reform because they fear the voters’ fear -- especially because they already think they took enough risks on Medicare. Modifying his plan may be a prerequisite for getting Republicans on board as well as the public.

That important caveat aside, however, Ryan is on the right track. A credible conservative alternative to Obamacare has to involve changing the tax code. And without a credible alternative, Republicans won’t be able to repeal it, let alone replace it.

(Ramesh Ponnuru is a Bloomberg View columnist and a senior editor at National Review. The opinions expressed are his own.)